Free Trade, Tariffs and Hypocrisy

Why Europe’s Cows Get a $2-a-Day Subsidy, and Other Trade Quirks

WASHINGTON, D.C., NOV. 30, 2002 ( debate over tariffs and subsidies is doing a brisk business again.

The latest flash point appeared this week when the United States proposed that all members of the World Trade Organization eliminate tariffs on industrial and commercial goods by 2015. Bush administration officials explained that the proposal would “turn every corner store into a duty-free shop,” the New York Times reported Nov. 26. Tariffs now add about $18 billion a year to the cost of goods that U.S. consumers buy.

U.S. tariffs on manufactured products average about 5%. Charges are even higher on some types of clothing and leather goods. The United States also imposes a variety of “anti-dumping” tariffs (up to 30% or higher) on imported steel.

The Washington Post reported Nov. 27 that some major business groups welcomed the announcement, saying it would spur on WTO negotiations that should lead to a lowering of trade barriers. Others, such as the American Textile Manufacturers Institute, were not so keen, fearing competition from cheaper-wage countries.

Though some fear that an end to tariffs would unduly help less-developed nations, the move could also hurt poor countries, argued WTO Director-General Supachai Panitchpakdi. He pointed out that many developing countries have high tariffs on goods to protect their fledgling industries, and would thus be at a disadvantage if they accept the U.S. plan, the Wall Street Journal reported Nov. 27.

A year after government ministers from more than 140 countries launched a new world trade round in Doha, Qatar, negotiations have not made much progress, the Financial Times noted Nov. 19. Many countries are opting for bilateral or regional agreements, which some fear could weaken free trade at the global level, dividing the world into rival trading blocs.

A recent WTO meeting of 25 trade ministers in Sydney, Australia, did result in some good news, the Economist Global Agenda reported Nov. 18. However, noted the article, many of the promises made at Doha have yet to be fulfilled, and some developing countries doubt that rich nations will fulfill their promises made in areas such as agriculture, market access and intellectual property.

According to the Economist, the Sydney meeting was successful in moving ahead on the issue of improving access to expensive patented medicines for AIDS, malaria and tuberculosis for countries that cannot afford them, spurring hopes that an agreement may be reached by year-end. But the meeting failed to resolve divisions on agricultural subsidies.

Undercutting poor farmers

Regarding agricultural subsidies, three British government ministers — Margaret Beckett, Clare Short and Patricia Hewitt — wrote a letter to the Independent newspaper protesting the unfairness of the system. The paper published the letter Nov. 24.

The three officials noted that the typical British family pays about 16 pounds ($25) a week to subsidize European food production. This permits European farmers to produce an excess of food, which in turn is sold off cheaply, undercutting poor farmers in the developing world. The European Union Common Agricultural Policy gives around $2 a day to every cow in Europe, leaving “1.2 billion men, women and children around the world living on half that,” the British officials lamented.

Not only did the ministers decry the unfairness of such a situation, but they also pointed out: “This is a massive diversion of scarce resources which could be more productively deployed elsewhere in our economies.”

And in spite of the latest proposal to reduce commercial tariffs, the U.S. record on agricultural subsidies came in for strong criticism after a new law that raised support for farmers. In May, Congress passed a law increasing federal spending on farm program by $82.8 billion over the next 10 years, on top of some $100 billion farmers already receive, the Financial Times reported May 10.

The 30 members of the Organization for Economic Cooperation and Development, the richest nations, spend well over $300 billion a year on supporting their farmers, the Guardian reported Oct. 30. This is at least five times what they spend on aid budgets.

“It is hypocritical to preach the advantages of trade and markets and then erect obstacles in precisely those markets in which developing countries have a comparative advantage,” said World Bank chief economist Nicholas Stern. His comments, reported in a World Bank press release Nov. 19, were made in a lecture at the Center for Economic Studies at the University of Munich.

Stern said World Bank research has shown that full elimination of agricultural protection and production subsidies in the rich countries would increase global trade in agriculture by 17%, with agricultural and food exports from low- and middle-income countries rising by 24%. As a result, total annual rural income in these countries could rise by about $60 billion, or roughly 6%.

Wary in Latin America

Meanwhile, talks continue on regional free-trade agreements. Trade ministers have agreed on a plan to negotiate a free-trade zone reaching from Canada to Argentina, the New York Times reported Nov. 2. Countries will set forth their proposals by February, with a view to completing negotiations by January 2005.

However, with many Latin America nations in economic straits, chances for success are not good, noted the Times. Many countries are disillusioned with the very idea of free trade.

Nevertheless, U.S. Trade Representative Robert Zoellick defended the proposal. In a Nov. 4 opinion article for the Wall Street Journal, he also noted that the United States is pursuing regional trade agreements in southern Africa, and bilateral agreements with Chile and Singapore.

“New U.S. trade agreements,” Zoellick argued, “can encourage reforms that will help establish the basic building blocks for long-term development in open societies.” Free trade, he said, “will both open new markets for the U.S. and strengthen fragile democracies in Central and South America, Africa and Asia.”

Shortly after, the European Union and Chile signed a free-trade agreement cutting tariffs on bilateral trade that had reached nearly $9 billion last year, the Associated Press reported Nov. 18. Under the deal, tariffs will be lifted over 10 years on over 97% of all traded goods.

In Asia, China and members of the Association of South East Asian Nations (ASEAN) signed an agreement to create what would be the world’s largest free-trade zone, Reuters reported Nov. 4.

Talks on the Southeast Asia-China free-trade area, with a potential combined market of 1.7 billion people, will start next year. China and ASEAN have a combined gross domestic product of $1.5 trillion to $2 trillion.

Flexibility and solidarity

In October 2001 the Holy See published a note on the then upcoming World Trade Organization meeting in Qatar. The note called for “gestures of flexibility and solidarity,” saying that “the enhanced development of the poorer countries is a contribution to global economic progress, international security and peace.”

The Holy See asked for a fair integration of the least developed countries into the global economy, and criticized that fact that wealthier countries have maintained strong protections precisely in those areas in which poor countries could be competitive, for example, agriculture and textiles.

The note also pointed out: “For a free trade system to be fair, it must not only guarantee legal equality among countries, it must also redress, as much as possible, the disadvantages, in terms of economic and negotiating power, of less industrialized economies and of commodity producer economies.” A year later, progress is still lagging in these areas.

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